Arizona could lose $60 million in federal rental aid after missing spending deadline

Arizona is in danger of losing a chunk of the $315 million it received in federal rental aid for rural areas.

Arizona is in danger of losing a chunk of the $315 million it received in federal rental aid for rural areas.

The state’s program has spent just 10% of its federal funding to help renters hurt by the pandemic stay in their homes, and a federal rule required that triple that rate had to be spent by Sept. 30.

Arizona has one of the biggest needs for rental aid and one of the lowest distribution rates of the funds among states, according to a national housing nonprofit.

The Arizona Department of Economic Security, which is handling the state’s rental and utility aid, must come up with a plan to get a lot more of the money to struggling tenants and landlords in less than a month.

That plan is expected to include reshuffling funds to metro Phoenix and Tucson rent programs that have already spent high proportions of their own federal money to help renters and landlords.

At the end of September, the U.S. Treasury Department announced plans to start reallocating Emergency Rental Assistance from states, counties and cities that haven’t spent at least 30% to other state and city programs that are helping more people.

The federal government allocated rental funds to large cities and counties and then to states to cover smaller and rural areas.

DES spokesperson Tasya Peterson said the state knew when it received the funding it was more than what was needed to help Arizona’s rural renters, and now it’s working on a plan to reallocate renter-aid funding to the state’s metro areas that have spent most of their share of the funds and need more.

“Federal guidance and messaging from the U.S. Department of the Treasury has indicated that the funding will stay within a state,” Peterson said.

DES received the bulk of almost half a billion dollars in rental funds from the first round of the federal funding allocated in January.

Metro Phoenix cities and Maricopa County received about $124 million, minus administration costs, from the first round of rental assistance funding.

About 90% of that Valley federal rental aid has been given to landlords and renters, so none of the rental aid programs in the Phoenix area are in danger of losing funding.

The Treasury deadline to submit a plan to spend more of the renter aid or reallocate it is Nov. 15.

September evictions:Here's why metro Phoenix evictions doubled despite more rental aid handed out

Getting more money to renters

The Biden administration wanted a national eviction moratorium for areas hardest hit by COVID-19 to run until Oct. 3 to give cities and states more time to get rental aid money out. But a U.S. Supreme Court decision ended the ban in late August.

Evictions doubled in Maricopa County in September, the first month after the moratorium ended.

Arizona could lose approximately $60 million of the state rental funds based on the Treasury rule saying the amount of “excess funds” taken back from a state or city will be the difference between the percentage already spent on rental assistance and the 30% threshold.

But the amount of money reallocated could climb if Arizona’s plan to spend more isn’t approved or doesn’t work.

DES's plan must show how it will speed up the distribution of the funds. If the plan is approved, then DES must report to Treasury every two months on its spending or potentially lose additional funding.

A Treasury official said states and cities that did not meet the Sept. 30 deadline can avoid losing funding if they show they have spent 30% of the funds or at least obligated 65% of the money by mid-November.

Some say the federal government’s large outlay of money to the state is lopsided based population.

DES received 55% of the rental aid, and its program covers rural areas with 1.26 million people. The other 45% of the funding went to help renters in urban areas with 5.9 million residents, according to an Arizona Multifamily Association analysis.

Moving AZ rental aid dollars around

Peterson said DES is currently working on reallocating funds to Arizona cities and counties, including Pima County and Tucson, that are running out of rental aid and requested money.

Tucson and Pima County have each asked DES for $11 million for their renter aid programs for a total of $22 million because both have almost completely spent their funds from the first round of the Emergency Rental Assistance program, said Dan Sullivan, director of community and workforce development at Pima County.

“We want to ensure we spend as much of DES’s funds to ensure the state doesn’t lose any money, and DES has been great working with us to do that,” he said.

Most metro Phoenix rental programs were criticized for getting slow starts, but in late summer, the federal government reduced restrictions on who can receive the money. Since then, the money has gotten to renters faster.

Phoenix received about $46 million in the first round of Emergency Rental Assistance and has spent 88% of it to help tenants.

“The city is actively developing an agreement with DES to begin serving Phoenix residents with rental assistance as well,” said Phoenix spokesperson Stephanie Barnes. “This will not only increase Phoenix residents' overall access to emergency rental and utility assistance funding but also assist with the expenditure of statewide funding.”

Eviction help:Rental aid can pay for landlords' legal costs. Now renters in eviction can get legal aid.

Maricopa County received $41.6 million to help renters and has spent 90% of the money to help renters.

County spokesperson Amy Bolton said the county is pleased about the prospect of getting funds reallocated per the Treasury guidelines.

Mesa received $14.1 million of the federal funding for renters and has spent all helping its residents.

“Mesa invites any opportunity to serve more people – be it those funds coming from DES or Treasury,” said Natalie Lewis, deputy city manager. “Our systems are working well, and we stand ready to help.”

Arizona Multihousing Association CEO Courtney LeVinus said the landlord group encourages Treasury and Congress to approve a more centralized approach to eviction relief.

“A unified approach would cut the red tape that has created so many delays, reduce confusion for applicants, and reduce the overhead costs that have siphoned off millions of dollars that could be used for relief to residents and property owners," she said.

Arizona not only state in danger of losing federal rental aid

At the end of August, 42% of the states and cities with Emergency Rental Assistance funds hadn’t hit the Treasury’s 30% expenditure level, according to the most recent analysis from the National Low Income Housing Coalition.

But among states that have the most renters and landlords that need the help, it found Arizona had one of the lowest rates of getting rental aid out. Georgia, Florida and Ohio were the other three states on that list.

Among cities and counties, the Housing Coalition found Baltimore, King County in Washington, Dallas County in Texas and Denver had the lowest rates of distributing the money. Baltimore and King County had distributed less than 1% of their rental funds at the end of August.

The Treasury Department is expected to come out with a list of states, counties and cities that are in danger of losing the money, based on Sept. 30 spending tallies, next week.

State use of federal funds

Arizona has run into problems with spending other federal aid during the pandemic.

Recently, Treasury said two programs announced by Gov. Doug Ducey in August that reward school districts for not imposing COVID-19 related mandates violate federal rules, and the state could lose the money.

At least $173 million in federal funds were set aside for the Arizona programs that awarded $7,000 for families who want to move their children from schools that mandate masks and other COVID-19 precautions and gave $1,800 per student to districts that didn’t impose the mandate.

Treasury said the programs "undermine evidence-based efforts" to stop the coronavirus and are "not a permissible use" of the money.

Last year, Ducey used $400 million of the CARES Act federal stimulus money awarded to Arizona to offset existing government spending instead of fighting COVID-19.

The move drew criticism from Democratic legislators and health groups.

Reach the reporter at Catherine.Reagor@arizonarepublic.com or 602-444-8040. Follow her on Twitter @Catherinereagor.

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